The Soaring Pay of CEOs

The burgeoning pay of corporate chiefs is making news these days -­as on the cover of Business Week and page one of the Wall Street Journal. The news is not just the huge, record spiral of executive compensation but the contrast of these annual riches with their workers and what is happening with the economy and their CEO peers overseas. Here are some examples. Thirty six year old Jim Manzi, the CEO of Lotus who joined the company in 1983, made $26.3 million in salary, bonuses and stock options last year. Paul Fireman, who heads Reebok, pulled in over $15 million. Philip Rooney, President of Waste Management made over $14 million, just a little more than Richard Furland of Squibb. John Welch, Jr. the boss of General Electric received $12.6 million while Jack Clarke, a mere vice president of Exxon brought $9.6 million to the family treasury.

According to Business Week’s annual survey, the CEO’s average total pay increased 48% in 1987 over 1986, reaching $1.8 million. Ten years ago, a reporter could count on the fingers of one hand the number of CEOs who made a million dollars a year; in 1987, two hundred and eighty-eight executives out of six hundred and seventy-eight surveyed by Business Week made over $1 million or more in total pay.

What’s wrong with this lucrative state of CEOs? Is it what the famous corporate consultant, Tom Peters, calls a “grotesque inequity”?

If corporate leaders expect to lead by example, the answer is an easy yes. Over a ten year period ending in 1987, not counting stock options, the CEO’s salaries and bonuses grew at a rate double that of workers’ wages and inflation and twelve times that of profits. Of course, in terms of dollars the gap between CEOs and workers on the assembly line is over thirty-five to one, compared to a ratio in Japan of about eight to one. For

the Big Three auto companies In Detroit, the ratio is even higher.

All the growing disparity seriously affects morale, motivation and. productivity of many workers. While CEOs are raking it in, they often are demanding, as GM’s Roger Smith did in 1985, that workers accept austerity programs or concessions. In Japan, when austerity comes to a company, it starts with top management.

CEOs and their advocates say that their pay is well earned. They invariably point to Lee Iacocca whose compensation slipped to a mere $17.9 million last year. He turned Chrysler around, they say. But he had a great deal of help from the U.S. taxpayer (remember the $1.5 billion loan guarantee), large-wage concessions by the auto workers and the auto import quota on Japanese cars that cost consumers plenty.

Moreover, Business Week placed Mr. Iacocca at the top of its list of executives who gave the shareholders the least return compared to his pay during the period between 1985 through 1987.

Another record for executive compensation is being set — how much they are paid to leave the company. The golden parachutes come in many packages. After mergers, the CEO of Viacom left with twenty five million dollars, while the chief of troubled E.F. Hutton departed with over sixteen million dollars.

Another aspect of these highest paid executives in the world is that they essentially set their own compensation even though they are hired managers paid by the shareholders. Company compensation committees, which in theory decide the pay levels for CEOs and other top executives are really rubber stamps in most cases. Donald Frey, the outspoken CEO of Bell and Howell, calls them “an old boys’ club.”

These overpaid moguls are not entrepreneurs or founders of their company. They are not risking their careers and capital. What many have done, instead, is participate in the management of American business, the ending of many jobs for steady workers and the overall weakening of our economy, through the Reaganite policies they support, to foreign corporate domination.

Ben Cohen, who co-founded the fast growing Ben and Jerry’s ice cream company in Vermont paid himself $70,000 last year. He tops top salaries at no more than five times the lowest-paid worker’s base pay. Such a policy fosters esprit de corps.

The decline of societies is usually precipitated by the distance between rulers and the ruled. So too, the decline of economies can be accelerated by the mind set of self-serving company executives who believe they should acquire much more while their workers and shareholders receive less. Setting pay records for themselves, in a year the stock market crashed and the huge trade deficit worsened, provides an ironic twist to their avaricious imperiousness.